Financial Performance Analysis of BHP Billiton

This assignment delves into the financial performance analysis of BHP Billiton, a leading global resources company. Students analyze the company's financial health through the lens of efficiency ratios, gaining insights into its operational effectiveness and market position. The analysis considers BHP Billiton's growth strategies, technological advancements, and customer segmentation.

Running head: FINANCE FOR BUSINESS
Finance for Business
Name of the Student
Name of the University
Authors Note
Course ID

1FINANCE FOR BUSINESS
Table of Contents
Introduction:...............................................................................................................................2
Income statement analysis:........................................................................................................2
Statement of financial position:.................................................................................................3
Cash Flow Statement:................................................................................................................3
Financial Ratio Analysis............................................................................................................4
Profitability Ratios:....................................................................................................................4
Liquidity Ratios:.........................................................................................................................5
Capital structure ratio:................................................................................................................7
Efficiency ratios:........................................................................................................................8
Conclusion:................................................................................................................................9
Reference List:.........................................................................................................................11

2FINANCE FOR BUSINESS
Introduction:
The current study is based on the determination of the financial position of BHP
Billiton. The study will take into the considerations the financial performance that has been
reported by BHP Billiton by analysing the performance posted for the year 2015-17. To
gauge into the financial position of the firm the study will take account of the income
statement, statement of financial position and cash flow statement with objective of gaining a
detailed understanding of BHP Billiton performance. In addition to this, several ratio analysis
will be conducted to gain an additional understanding of the firm’s liquidity, as these ratios
will be covering the areas of profitability, capital structure ratios, and liquidity and efficiency
ratios.
Income statement analysis:
On analysing the income statement of BHP Billiton it was found that, the revenue
reported by the firm for the year 2016 stood $30.9 billion. The revenue reflects the fall in
revenue of $13.7 billion from the reported figures of $44.6 billion in the year 2015. The
falling revenue was largely responsible for the weaker average price realization across all the
major commodities. The total amount of expenses for the year 2016 reduced by $1.5 billion
as the expense for the firm stood $35.5 billion for the year ended 2016. The expenses reduced
by 4% in comparison to the amount reported in 2015 and a large part of expenses was
reduced in the employee benefit expenses (BHP Billiton 2018). Additionally the expenditure
on depreciation and amortization also reduced by $497 million in the year 2016.
The profit after taxation from the continuing and discontinued operations, which was
attributable to the shareholders of the BHP Billiton, has increased after reporting a loss of
$6.4 billion in the financial year of 2016 to a profit of $5.9 billion in the financial year of
2017 (BHP Billiton 2018). Additionally the revenue for BHP Billiton also increased by $7.4

3FINANCE FOR BUSINESS
billion or by 24% from the revenue reported in 2016. Thus, the company has significantly
gained strength from the loss reported in 2016 with increase in revenue and reduction in
expenses for the year 2017 (Asquith and Weiss 2016).
Statement of financial position:
On considering the statement of financial position, it can be stated that current assets
of the firm increased by $1,345 billion as the current assets for the year 2015 stood $16,369
billion that subsequently increased to $17,714 billion. The current liabilities of BHP Billiton
has reduced over the year as the current liabilities for the year ended 2016 stood 12340 while
in the year 2017 it subsequently reduced by $974 billion to stand at $11,366 (BHP Billiton
2018). The unit cash costs for BHP Billiton copper assets decreased by 4% to US1.15 percent
following the idle capacity and other forms of strike related costs that is incurred by the firm
(Henderson et al. 2015). Overall BHP Billiton has reported strong assets reflecting the
company has been sufficient in utilizing its assets to meet its debt obligations as and when
they become due.
Cash Flow Statement:
The net operating cash flow following interest and tax has reduced in 2016 by $8.7
billion from the figures reported in 2015. The primary reason for such fall in operating cash is
due to the decrease in the cash generated from operations. Additionally in 2015, the net
financing cash inflows of $248 million represented an increase by $8.6 billion from the
financial year of 2015 and this is largely because of the issue of multicurrency hybrid notes
during the year 2016 (BHP Billiton 2018). However, in 2017, the cash flow from operations
increased by $6.2 billion and the rise is mainly attributable to the higher prices of commodity
with constant focus on the cash cost efficiency. The net cash from financing activities in 2017
has increased by $9.4 billion reflecting that BHP Billiton has immensely focused on

4FINANCE FOR BUSINESS
reduction of debt with $3.3 billion of debt repayment (Warren and Jones 2018). The overall
cash flow reported by the firm stood strong in the year 2017 with net increase in cash and
cash equivalents of 3,510 billion.
Financial Ratio Analysis
Profitability Ratios:
The profitability ratios can be defined as those ratios, which helps in representing the
financial metrics of an organization (Powers, Crosson and Needles 2014). These ratios are
generally used to ascertain whether the organization has been successfully generating revenue
against the income reported by the firm. The gross for the firm has been on a rising trend as
the company has reported a rising gross profit margin of 66.62% for the year ended 2015. In
the subsequent year of 2016 and 2017, the company reported the gross margin of 72.01 and
85.77% respectively (Beatty and Liao 2014). The increase in gross margin can be attributed
to the rising trend of sales reported by BHP Billiton as the company reported the sales
revenue of $30,912 million for the year 2016 that subsequently increased in the year 2017 to
$38,285 million.
The net profit margin on the other hand for the year 2015 stood 4.28% whereas in the
following year of 2016 BHP Billiton reported a negative net profit margin of -20.66%. This
primarily attributed to the reduction in revenue by US $13 billion or subsequently 31% from
the revenues posted in the financial year of 2015. In the following year of 2017, BHP Billiton
reported an increasing net profit margin of 15.38% and the rise in net profit margin is largely
because of the increase in the revenue of the firm (Board 2015). The operating profit margin
for the year 2015 stood 19.4% whereas in the year 2016 the operating profit margin was
reported to be negative with figures standing -20.2%. However, the operating margin gained
strength as the figures stood positively at 30.7%.

5FINANCE FOR BUSINESS
The return on equity for BHP Billiton during the year 2015 was 2.95 and in the
subsequent year of 2016, the return on equity posted by BHP Billiton was -11.76. Again, the
fall in return on equity is largely because of decline in revenue with weaker average realised
prices across all the main commodities (Deegan 2016). Considering the return on asset for the
year 2015 the company reported ROA of 1.53% whereas in the year 2016 the return on asset
stood negatively at -5.37%. Though the return on asset gained, strength in the subsequent
year of 2017 with 5.03% the steady trends is largely because of higher amount of net profit
reported from strong sale of commodities across the regions.
Profitability Ratios 2015 2016 2017
Gross Margin Ratio 66.62% 72.01% 85.77%
Net Profit Margin 4.28% -20.66% 15.38%
Operating Profit margin 19.4% -20.2% 30.7%
Return on Equity 2.95% -11.76% 10.29%
Return on Assets 1.53% -5.37% 5.03%
2015 2016 2017
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
66.62% 72.01%
85.77%
4.28%
-20.66%
15.38%19.4%
-20.2%
30.7%
2.95%
-11.76%
10.29%
Profitability Ratios
Gross Margin Ratio Net Profit Margin
Operating Profit margin Return on Equity
Return on Assets
Figure 1: Figure representing Profitability Ratios
(Source: As Created by Author)

6FINANCE FOR BUSINESS
Liquidity Ratios:
Liquidity ratios can be defined as those ratios that is conducted among the liquid
assets and liabilities of the organization (Zeff 2016). In context of the BHP Billiton the
liquidity ratios namely the Current ratio, Quick Ratio and Cash Ratio is calculated to perform
an analysis of the liquid assets and the liabilities stated by BHP Billiton. The current ratio
reported by BHP Billiton has been on a rising trend as the company posted a strong current
ratio of 1.27 for the year 2015 and the following year of 2016, the current ratio increased to
1.44.
Subsequently in the concluded year of 2017, the current ratio stood 1.85 respectively.
The quick ratio on the other hand also reflected the strong upward rising trend as the quick
ratio for 2015 stood 0.92, which subsequently increased to 1.15 in 2016. During the year
2017, the current ratio strongly stood at 1.52 reflecting BHP Billiton has sufficiently used its
current assets to meet its short-term debt liabilities (Hermason, Edwards and Maher 2016).
The cash ratio stood marginally lower in the year 2015 to 0.53. However, in the subsequent
year of 2016 and 2017 the cash ratio increased to 0.85 and 1.25 respectively. The increase in
cash ratio is primarily attributable to the cash and cash equivalents as in 2016 the cash and
cash equivalent stood $10440 million whereas in 2017 it increased to 14225. Overall, the
company has been able to maintain its liquidity position in meeting its short-term business
obligations by sufficiently using the current assets and liabilities.
Liquidity Ratios 2015 2016 2017
Current Ratio 1.27 1.44 1.85
Quick Ratio 0.92 1.15 1.52
Cash Ratio 0.53 0.85 1.25

7FINANCE FOR BUSINESS
Current Ratio Quick Ratio Cash Ratio
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
1.27
0.92
0.53
1.44
1.15
0.85
1.85
1.52
1.25
Liquidity Ratios
2015 2016 2017
Figure 2: Figure representing Liquidity Ratios
(Source: As Created by Author)
Capital structure ratio:
The capital structure ratio can be defined as that ratio that helps in reflecting the
ability of the firm increasing its value from the capital employed (Cadden and Schneider
2014). As evident from the analysis the debt ratio for the firm has somewhat been steady as
the debt ratio for the year 2015 was 2.08. The debt ratio though marginally declined in the
year 2016 to 1.84 but in the following year, it increased to 1.96 representing higher
borrowing instances. Considering the equity ratio, during the year 2015 the equity ratio stood
0.52 while it marginally fell to 0.46 in the year 2016 to 0.46. In the concluding year of 2017,
the equity ratio stood for BHP Billiton to 0.49. The debt to equity ratio on the other hand
stood 0.92 for the year ended 2015 while in the subsequent year of 2016 the debt to equity
ratio rose to 1.19 (Williams 2014). The rise in debt equity is because of the impairment and
expenditure of US $272 million.
Capital Structure Ratios 2015 2016 2017
Debt Ratio 2.08 1.84 1.96
Equity Ratio 0.52 0.46 0.49

8FINANCE FOR BUSINESS
Debt-Equity Ratio 0.92 1.19 1.04
Gearing Ratio 0.50 1.08 0.53
Debt Ratio Equity Ratio Debt-Equity Ratio Gearing Ratio
0.00
0.50
1.00
1.50
2.00
2.50
2.08
0.52
0.92
0.50
1.84
0.46
1.19 1.08
1.96
0.49
1.04
0.53
Capital Structure Ratios
2015 2016
2017 Linear (2017)
Figure 3: Figure representing Capital Structure Ratios
(Source: As Created by Author)
Efficiency ratios:
The efficiency ratio is used to measure the effectiveness of the organization in
determining whether the firm has been successfully making the use of assets and liabilities
(Edmonds et al. 2016). As evident that the accounts receivable ratios for BHP Billiton during
the year 2015 stood 8.96 whereas in the year of 2016 the accounts receivable ratio was 8.31.
In the recently concluded year of 2017 the accounts receivable ratio reportable by the firm
was 12.63 with a sharp rise from the previous year of 2016. The asset turnover ratio has been
somewhat low as the figure reported for the year ended 2015 and 2016 stood 0.36 and 0.26
respectively (Pratt 2016). Whereas in the year 2017 the asset turnover ratio reported by the
firm was 0.33. The inventory turnover ratio though reflects an improving trend as the time
taken by BHP Billiton to rotate its inventory has been gradually decreasing.

9FINANCE FOR BUSINESS
The inventory turnover ratio for the year ended 2015 stood 2.89, which improved in
the following years of 2016 and 2017 to 2.25, and 1.54 respectively. The working capital
ratio for the year 2015 stood 1.27 whereas for the year ended 2016 and 2017 the working
capital turnover ratio stood 1.85. Overall, by taking into the considerations the efficiency
ratio it can be stated that BHP Billiton has been effective in mobilizing and making an
efficient use of its relative assets in proportion of the liabilities (Tricker and Tricker 2015).
This is because the analysis represents that BHP Billiton has been successfully able to pay its
liabilities from the reportable assets of the firm.
Efficiency Ratios 2015 2016 2017
Accounts Receivable Turnover Ratio 8.96 8.31 12.63
Asset Turnover Ratio 0.36 0.26 0.33
Inventory Turnover Ratio 2.89 2.25 1.54
Working Capital Turnover Ratio 1.27 1.44 1.85
Fixed Asset Turnover Ratio 0.47 0.37 0.48
Accounts
Receivable
Turnover Ratio
Asset Turnover
Ratio Inventory
Turnover Ratio Working Capital
Turnover Ratio Fixed Asset
Turnover Ratio
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
8.96
0.36
2.89
1.27 0.47
8.31
0.26
2.25 1.44
0.37
12.63
0.33
1.54 1.85
0.48
Efficiency Ratio
2015 2016 2017
Figure 4: Figure representing Efficiency Ratios
(Source: As Created by Author)

10FINANCE FOR BUSINESS
Conclusion:
On a decisive note the study, suggest that the general performance of the BHP Billiton
has been growing as the business has made advancement in technologies and constant
innovation so that it can reshape the operational strategy and market overall. The company
has been able to change the customer expectation with segmented goods from corner to
corner to its zone of processes. The financial analysis signifies that the corporation has
performed well in the marketplace by improving its proceeds from operations.

11FINANCE FOR BUSINESS
Reference List:
Asquith, P. and Weiss, L.A., 2016. Determining a Firm's Financial Health (PIPES‐
A). Lessons in Corporate Finance: A Case Studies Approach to Financial Tools, Financial
Policies, and Valuation, pp.7-25.
Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the
empirical literature. Journal of Accounting and Economics, 58(2), pp.339-383.
BHP Billiton. (2018). Financial results and operational reviews. [online] Available at:
https://www.bhp.com/investor-centre/financial-results-and-operational-reviews [Accessed 11
Jan. 2018].
BHP. (2018). BHP Billiton | A leading global resources company. [online] Available at:
https://www.bhp.com/ [Accessed 11 Jan. 2018].
Board, A.P., 2015. Tetranormalization and the Accounting Standard-Setting
Process. Organizational Change and Global Standardization: Solutions to Standards and
Norms Overwhelming Organizations, p.69.
Cadden, D.T. and Schneider, G.P., 2014, January. Accounting and Entrepreneurship students:
Scope and delivery issues. In Allied Academies International Conference. Academy of
Entrepreneurship. Proceedings (Vol. 20, No. 1, p. 3). Jordan Whitney Enterprises, Inc.
Deegan, C., 2016. Financial accounting. McGraw-Hill Education Australia.
Edmonds, T.P., Edmonds, C.D., Tsay, B.Y. and Olds, P.R., 2016. Fundamental managerial
accounting concepts. McGraw-Hill Education.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial
accounting. Pearson Higher Education AU.

12FINANCE FOR BUSINESS
Hermason, R., Edwards, J. and Maher, M., 2016. Accounting Principles: Managerial
Accounting.
Powers, M., Crosson, S.V. and Needles, B.E., 2014. Principles of accounting. South-
Western, Cengage Learning.
Pratt, J., 2016. Financial accounting in an economic context. John Wiley & Sons.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and
practices. Oxford University Press, USA.
Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
Williams, J., 2014. Financial accounting. McGraw-Hill Higher Education.
Zeff, S.A., 2016. Forging accounting principles in five countries: A history and an analysis
of trends. Routledge.